RBA economist tells inquiry household wealth is growing
The cost-of-living crisis has been weighing on millions of households for some time now and it's not letting up. The RBA's chief economist has been giving evidence at a parliamentary select committee on this as well as the state of inflation.
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00:00Very simply, the Chief Economist of the Reserve Bank is saying demand in the economy is still
00:07too strong.
00:08And what she's saying is that there's a weighting that the RBA has to do.
00:14So there is a limited amount of demand that the economy can take, and at the moment that
00:20demand is exceeding that limit.
00:23And you might think, well, there are millions of struggling households out there, so how
00:26can that be true?
00:27But this is an economic equation that is taking in an aggregate amount of demand, and it's
00:33an economic equation that is looking at really the fact that there are wealthier households
00:39out there that are able to spend, and that's what they're doing.
00:42But crucially, that demand exceeding supply, if you like, is adding to inflation.
00:49And it's why inflation is sort of coming down so slowly and so stuck at sort of 3.8%, 3.9%,
00:56well above the Reserve Bank's target band of 2% to 3%.
01:01And crucially, she said at this Senate committee that households are getting extra cash in
01:08their pockets to be able to contribute to that demand.
01:12And of course, the government has given them that cash in the form of energy rebates, and
01:18in some cases, because it's already kicked off from the 1st of July, the Stage 3 tax
01:22cuts.
01:23So the RBA is effectively saying households have more money in their pockets, they're
01:27contributing to the economy, they're spending on goods and services, and it's adding to
01:32demand and inflation.